Drug Pricing

Performance-Based Pay for Pills

Stada Arzneimittel
Take two. Call in the morning. Source: DPA

New pricing models are helping pharmaceutical companies combat rising healthcare costs and cover the tall expense of research and development. The new models allow insurers and patients to skip out on bills for prescription drugs that don’t work, or pay different fees depending on a medicine’s proven effectiveness against a specific malady. But German patients, despite the potential savings, have so far resisted.

“In the US, where healthcare costs are exploding enormously, public and private insurers are putting a lot of pressure on companies to come up with new pricing models,” said Vir Lakshman, head of KPMG’s German drugs and chemicals unit. The models have not only taken hold in the world’s biggest economy, they’re also fixtures on the Italian and Swiss markets.

Roche’s Avastin cancer treatment is just one example of the new pricing models. The drug has been proven most effective against colon cancer, so the Basel-based pharmaceutical company charges those patients about $4 per milligram while breast cancer victims are billed about $3.50. Kidney cancer? A dollar less. Meanwhile, crosstown Swiss rival Novartis goes one step further, refusing to bill leukemia patients in the US who don’t respond to a new gene therapy within a month. However, those whose disease retreats will see an invoice north of $400,000.

Drugmakers are hoping the models will help speed newer, more profitable pharmaceuticals to market since insurers won’t have to worry about shelling out for ineffective treatments. The models are also designed to ease physician fears about prescribing ineffective treatments, which can lead to accusations of unnecessarily boosting treatment costs.

Medikamente gegen HIV
We hope someone knows what they're for. Source: DPA

Despite all the benefits, drug companies have had trouble exporting the concepts to Germany, Europe’s biggest pharmaceutical market. Powerful regulators set uniform prices on drugs like Avastin, regardless of their effectiveness for specific indications. And the country’s notorious love of privacy also makes collecting the necessary information difficult. Records, if kept at all, are usually only paper-based and are maintained by family doctors. Collecting data for discounts and rebates is cumbersome and patients resist the release of their information.

As often happens, an outsider’s viewpoint may be able to ease the introduction to Germany. Christoph Franz is head of Roche’s supervisory board, which must review and approve all management board moves, but is better known as a former CEO of Germany’s Lufthansa airline. Mr. Franz said he was surprised at the amount of information passengers were willing to divulge just to earn extra bonus miles. In healthcare, he said, “the benefit is incomparably bigger.” If they understand the advantages, patients are likely to become more open about their treatments.

Still, the German resistance hasn’t kept the new models out entirely – Novartis has had mixed experiences. An experiment with the osteoporosis treatment Aclasta and insurer Barma failed because its mechanism – measuring osteoporosis-related broken bones – proved too difficult. Bones also break because of falls and other accidents. Undeterred, Novartis has launched another trial, this time looking at the asthma treatment Xolair. The drugmaker is refunding the cost to a handful of employer health insurers if no improvement is seen after 16 weeks.

“These contracts are very complex,” said Mr. Lakshman from KPMG. This is Germany. Complexity has never presented a problem.

Juergen Salz and Jacqueline Goebel are reporters for our sister publication WirtschafsWoche. To contact the authors: juergen.salz@wiwo.de, jacqueline.goebel@wiwo.de 

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